Beta

Also seen as: market beta; the risk it measures is called systematic risk (or market risk). Fincanva also uses the word "Beta" as a feature-maturity badge, which is a different thing entirely — see the next section.

Why does Fincanva show two different things called "Beta"?

Two unrelated meanings share the word "Beta" in the app, and telling them apart is the first thing to get right.

• Beta the metric — the market-sensitivity number described on this page. It appears as the Beta column in screener results and as the quantity the Beta Neutral allocation method targets.
• The "Beta" badge — a small badge reading "Beta" sitting next to the Fincanva score card title. It marks that feature as being at a beta stage of development. It is a maturity label, not a number, and it carries no beta value at all. See Fincanva score.

There is no standalone beta row in the metrics table: the metrics page reports volatility and drawdown-based risk measures instead, and beta lives on the screener and allocation surfaces. See what every number on the metrics page means for what that table does report.

How is beta calculated?

Beta is the covariance between the asset's returns and the market's returns, divided by the variance of the market's returns.

where: $r_a$ is the asset's (or strategy's) return over each period, $r_m$ is the market's return over the same periods, $\operatorname{Cov}$ is covariance and $\operatorname{Var}$ is variance. Equivalently, beta is the slope of a regression line fitted to the asset's returns against the market's returns — which is why a beta of 1.5 reads as "1.5 units of movement for every 1 unit of market movement".

Because beta is a slope and not a spread, it is a different measure from volatility: volatility says how much something moves, beta says how much of that movement tracks the market.

Where does Fincanva use beta?

• Screener results carry a Beta column, so you can sort or read a candidate instrument's market sensitivity alongside its other figures.
• Beta Neutral is an allocation method whose description reads "Long + short legs sized to target a portfolio beta". Its Target beta field carries the hint "0.00 = market-neutral. Positive = net long exposure; negative = net short exposure." — so the method uses beta as an input you set, not as a result it reports. See Beta Neutral.
• Beta is measured against a Benchmark instrument you choose rather than a fixed index. That field's hint reads "The portfolio's beta is computed against this instrument."
• A Use Adjusted Beta switch is available on the same method, with the hint "Shrinks the OLS beta estimate toward 1.0 (Bloomberg "Adjusted Beta" — Vasicek 1973). Stabilises estimates on short windows." Adjusted beta also appears in the correlation matrix.
• The In-sample field, in the Leverage & calculation window section, sets how much history the estimate reads. Its hint reads "Historical window used by the active method for volatility, correlation, beta, and similar calculations. Default 12."

Defaults in Fincanva

• Beta is always relative to something: whichever reference instrument the allocation method is pointed at, not a universal "the market".
• The screener's Beta column is a per-instrument figure, not a figure for your strategy.
• The metrics table has no beta row today; a strategy-level beta is not reported as a performance metric.
• Adjusted beta is a separate variant — an estimate pulled toward 1.0 to steady it on short histories — and on the Beta Neutral method its toggle is on by default; turn it off to work from the raw fitted beta.

Worked example

Take an instrument with a beta of 1.5 against its reference. On a day the market rises 1%, the instrument would be expected to rise roughly 1.5%; on a day the market falls 1%, it would be expected to fall roughly 1.5%. Across a −20% market fall, a beta of 1.5 points to roughly −30%.

Now compare an instrument with a beta of 0.5: the same −20% market fall points to roughly −10%. Both figures are averages fitted over past returns, not per-day promises — a high-beta instrument can rise on a day the market drops, and beta says nothing at all about the part of the return that is unrelated to the market, which is what alpha describes.

What counts as a good value?

There is no good or bad beta, because beta is not a score. A beta near 1 means the position essentially rides the market; well above 1 means market moves reach you magnified in both directions; well below 1, or negative, means you are less exposed to the market's direction and more exposed to whatever else drives that instrument.

What beta does tell you is where a result came from: a strategy with high market exposure that gained in a rising market got much of that gain from the market itself, which is why beta is usually read next to a benchmark comparison rather than on its own.

Beta is estimated from historical returns and describes past sensitivity, not future movement. Fincanva provides no financial advice — see Is this financial advice?.